Huntsman Corp (HUN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2013 Huntsman Corporation earnings conference call. My name is Marc, and I will be your operator for today's call.

( Operator Instructions )

As a reminder, this call is recorded for replay purposes. I would now like to hand the call over to Mr. Kurt Ogden, Vice President of Investor Relations. Please proceed.

Thank you, Marc, and good morning, everyone. Welcome to Huntsman's fourth quarter 2013 earnings call. Joining us on the call today are Jon Huntsman, our founder and Executive Chairman; Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO.

This morning before the market opened, we released our earnings for the fourth quarter 2013 via press release and posted it on our website, www.Huntsman.com. We also posted a set of slides on our website which we intend to use on the call this morning in the discussion of our results.

During this call we may make statements about our projections or expectations for the future. All such statements are forward looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward looking statements during the quarter.

In addition, we will also refer to Non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income or loss. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release which has been posted on our website at www.Huntsman.com.

Let's turn to some highlights on slide number 2. In our earnings release this morning we reported fourth quarter 2013 revenue of $2.705 billion, adjusted EBITDA of $313 million and adjusted earnings per share of $0.48 per diluted share.

I will now turn the call over to Peter Huntsman our President and CEO.

Thank you, Kurt. Good morning, everyone, and thank you for taking the time to join us this morning. Let's turn to slide number 3. Adjusted EBITDA for our polyurethanes division in the fourth quarter 2013 was $173 million. Compared to the prior year period we saw favorable earnings growth from our MDI urethanes business, however, this was more than offset by lower earnings from our PO/MTBE.

We continue to see strong demand for MDI. Our sales volume grew 7% in the fourth quarter compared to the prior year period. In Europe we saw double digit growth in two of our largest markets, insulation and composite wood products. In the Asia-Pacific region growth was well-balanced across the insulation, appliance, automotive and furniture markets. An improvement in North American housing demand drove double digit growth for composite wood products in the Americas region where we also saw attractive growth in the insulation, adhesives and furniture markets.

The cost of benzene, which is a key raw material for MDI, increased approximately 16% during January compared to the average cost in the fourth quarter. We have announced price increases to offset this impact, however, there is generally a lag effect of 60 to 90 days. We combine propylene oxide to based polyols with MDI to create specific polyurethane system solutions for our customers. In the US we manufacture our own propylene oxide. MTBE is a co-product of our manufacturing process. PO/MTBE earnings in the fourth quarter decreased $22 million compared to the prior year primarily due to lower margins.

The price of premium unleaded gasoline to which the price of MTBE has a strong correlation decreased more than 10% compared to the prior year. During 2014 we expect the lower selling price for PO/MTBE to continue along with higher raw material costs, however, we believe strong demand and improving MDI urethane margins will more than offset pressure on PO/MTBE margins.

In the first quarter 2014 we expect the higher cost of benzene to offset the benefit of MDI volume growth. As a result, the lower selling price of PO/MTBE we expect EBITDA for the polyurethanes division in the first quarter 2014 to be less than the first quarter of 2013.

Let's turn to slide number 4. In the fourth quarter our performance products division earned $116 million of adjusted EBITDA, an increase of $35 million compared to the prior year period of $81 million. This represents a fourth quarter record in earnings. Within our amines business we saw improvement in sales volume and margin. This is an important and encouraging trend as we believe amines has the largest potential for increasing future earnings of this division.

In January of this year we announced our intent to expand our global polyetheramines capacity by 15% through debottlenecking projects at three of our existing manufacturing facilities. Demand for polyetheramines has been growing at approximately 8%. We continue to see strong demand and pricing from maleic anhydride, and we have seen improved production yields as a result of advantaged US Gulf coast manufacturing costs for our upstream intermediate chemicals following the successful first quarter maintenance of our facility in Port Neches, Texas.

Let's turn to slide number 5. Adjusted EBITDA in the fourth quarter in our advanced materials division was $33 million, an improvement of $25 million compared to the prior year of $8 million. Our restructuring efforts are clearly having an impact on the bottom line. In addition to taking action on our fixed costs, we have preferentially walked away from certain low margin basic liquid epoxy business which improved our overall customer product mix.

In response and in order to rebalance our internal material needs, we closed our Spanish and Indian basic liquid epoxy resin producing units. This more than offset sales volume growth in formulated systems and multifunctional resins resulting in a 15% sales volume decrease for the division compared to the prior year. During 2014 we do expect to growth in volumes in both our formulations and specialty component products.

Let's turn to slide number 6. Our textile effects division reported adjusted EBITDA of $8 million in the fourth quarter, an improvement of $7 million compared to the prior year of $1 million. Our restructuring efforts in this division have been focused on sales growth through increased market share, improving margins and lowering our fixed cost. We have seen strong double digit sales volume growth in the key markets we have been targeting.

In addition, improving consumer confidence in large end markets such as North America and Europe are having an improved pull through effect on demand. During the quarter we successfully completed our restructuring in Switzerland and decommissioned our Swiss manufacturing facilities. We have successfully completed all product transfers to lower cost locations and are pleased that throughout the transition we maintained excellent environmental and safety performance.

Slide number 7, our pigments division earned $33 million of adjusted EBITDA in the fourth quarter 2013 compared to $14 million in the prior year. Our global sales volume improved 15% compared to the prior year. The most significant increase in volume came from Europe which is our largest region. We are encouraged by the recent demand trends we have seen and do not believe there is any excess inventory on the customer level. Unfortunately, inventories at the producer level remain elevated at approximately 75 days. Our inventories -- our inventory days were approximately 65 at the end of the year which is more in line with historical averages for this time of year. We believe this excess supply at the producer level has delayed our ability to raise selling prices.

We expect to close on the acquisition of the Rockwood Holdings' performance additives and titanium dioxide businesses during the first half of 2014 and remain confident in our ability to deliver synergies of $130 million. Antitrust review in the US is complete, and we are making positive strides as it relates to the European Union review. We believe this acquisition will add significant shareholder value.

Before sharing some concluding thoughts, I would like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer. Kimo?

Thanks, Peter. Let's turn to slide 8. In the fourth quarter of 2013 our adjusted EBITDA increased $68 million to $313 million from $245 million in the prior year. The improvement is primarily attributable to two main factors. First, we saw meaningful growth in sales volumes which accounted for $30 million of the improvement. Sales volumes grew in all of our divisions with the exception of advanced materials which preferentially walked away from certain low margin businesses.

The second main factor in EBITDA improvement came from the benefits of our self-help fixed cost restructuring which accounted for approximately $33 million of the improvement. Our full year adjusted EBITDA in 2013 decreased $226 million to $1.213 billion from $1.439 billion in 2012. The decrease was primarily attributable to $264 million in lower earnings from our pigments division which has been going through an industry wide business cycle. Our PO/MTBE earnings which benefited from industry supply outages in 2012 decreased $66 million.

We were also negatively impacted by approximately $55 million as a result of the planned maintenance outage our Port Neches, Texas facility in the first quarter 2013. These were partially offset by lower fixed costs from our restructuring efforts which accounted for approximately $124 million of EBITDA improvement to a lesser degree increased sales volumes. We expect our restructuring efforts to contribute an additional approximately $60 million of future EBITDA.

Slide 9. Our year-over-year consolidated sales revenue for the fourth quarter increased 3%. This was primarily due to an improvement in sales volumes of 5% partially offset by a decrease in sales mix effect of 2%.

Regionally, our largest category, North America, which makes up 31% of our total revenues, increased 7%. Our second largest region, Europe, increased 6% whereas Asia-Pacific saw sales revenue increase 1%. This all was partially offset by a 3% decrease from rest of world category which is comprised of Latin America, the Middle East and Africa.

Our polyurethane businesses our largest. It made up 44% of our total revenue in the fourth quarter and grew at 4%. MDI urethane revenue increased 9% and more than offset lower PO/MTBE prices. Performance products and pigments both saw attractive growth of 2% and 3%, respectively, led primarily by increased sales volumes.

In advanced materials, again, we walked away from certain low margin business resulting in a 3% decrease in sales revenue. Our total sales revenue decreased 1% in the full year 2013 compared to 2012. An improvement in sales volumes of 1% was more than offset by a 2% decrease in average sales -- selling prices primarily attributable to our pigments businesses. Sales revenues increased in our polyurethane and textile businesses driven by improved sales volumes.

Sales revenues decreased in performance products due to the impact of the first quarter maintenance of our Port Neches, Texas facility. And sales revenues decreased in advanced materials due to lower sales volumes again as we reduced our basic liquid epoxy resin sales. In our pigments businesses attractive sales volumes growth of 10% was more than offset by lower average selling prices resulting in a 12% decrease in sales revenue.

On to slide 10. At the end of the quarter we had a little more than $1 billion of cash and unused borrowing capacity. We continue to focus on working capital investment. During the quarter our primary working capital decreased providing a source of $100 million in cash. Primary working capital for the full year 2013 was a source of $54 million in cash.

During the quarter we spent $176 million in capital expenditures. For the full year 2013 we spent $471 million in capital expenditures. We expect to spend approximately $500 million on CapEx in 2014 net of reimbursements and excluding any amounts associated the planned acquisition of the Rockwood Holdings businesses.

Our adjusted effective income tax rate for the full quarter and full year 2013 was 21% and 32%, respectively. As a result of the pension accounting rules we were required to record a $15 million decrease to tax expense. Excluding this pension impact, our 2013 full year tax rate would have been 35%. So we expect our 2014 adjusted effective tax rate to be very similar, approximately 35% excluding the impact again of the acquisition of the performance additives and titanium dioxide businesses at Rockwood. We expect our longer term adjusted effective tax rate to be about 30%.

In December of 2013 we issued EUR300 million senior notes that carry an interest rate of 5-1/8% and will mature on April 15, 2021. Net proceeds were used to repay all of the principal amount outstanding, or substantially all of the principal amount outstanding, under our term loan C to pay related fees and expenses for general corporate purposes. In October, 2013 we entered into an amendment to our senior credit facilities that provides for a new seven year term loan of $1.2 billion as well as an increase in our existing revolving credit facility by $200 million for a total revolver of $600 million. We have secured commitments from a group of financial institutions to provide the term loan and expanded revolver. This new financing will be funded when we complete the acquisition of the Rockwood businesses.

Peter?

Thank you, Kimo. A year ago at this time we committed to deliver approximately $100 million in cost savings in 2013. We delivered $150 million of savings as all of our participating divisions contributed more restructuring benefits than expected. By the end of 2015 we expect to deliver an additional $60 million of EBITDA improvements.

Last year we committed that our non-TiO2 divisions would improve within the year. In 2013 we not only finished year with a record fourth quarter but our non-TiO2 divisions earned a record adjusted EBITDA. We stated last year our intent to participate in TiO2 industry consolidation. With our announced acquisition of the Rockwood Holdings performance additives and TiO2 business we will broaden our product offering, take advantage of synergies and increase our optionality to improve shareholder value.

As I mentioned earlier, we expect to close on this acquisition in the first half of this year and start achieving our $130 million in planned synergies before the end of the year. We believe this combined pigments business will be an industry leader in color and white pigments. We intend to take it public within two years of closing strengthening our balance sheet and the valuation of our stock multiple.

As we look at the first quarter performance, having not yet received a complete picture of January, I believe our first quarter 2014 adjusted EBITDA will be better than first quarter 2013 of $275 million, after factoring in last year's $55 million negative impact from maintenance in our performance products division. We expect this first quarter year-on-year improvement notwithstanding significant increases in some of our large volume raw materials. We purchase more than 200 million gallons a year of benzene and more than 300 gallons -- 300 million gallons a year of butane. Compared to fourth quarter averages we have been hit with nearly $0.70 a gallon increase in benzene cost and $0.15 a gallon increase in butane cost. We believe these prices will come down by the end of the first quarter. Nonetheless, we will have these headwinds in the first quarter.

While it is too early to tell the full impact of these higher prices, we are raising our selling prices across the board to offset these increases. Despite the first quarter headwinds this year in raw materials and the colder than expected winter in North America and before any impact from the Rockwood deal, we expect the earnings in all of our divisions to improve in 2014 compared to 2013. We are seeing signs of slight economic improvement in Europe and continue to see more growth in North America. Between the improvements we expect in our existing business, further restructuring benefits and the benefits of the Rockwood acquisition, we believe that there is continued opportunity to further increase shareholder value.

With that I will turn the call back over to Kurt.

Thank you Peter. I would like to remind everyone that we will be hosting an investor day event on March 6 in Midtown New York. The agenda for the meeting will include a review of the Company's business strategy and an in-depth discussion of each of our businesses. If you would like to attend please send an e-mail to, IR@Huntsman.com.

Marc, that concludes our prepared remarks. Will you explain the procedure for Q&A and then open the line for questions?

(Operator Instructions)

Robert Koort, Goldman Sachs.

Peter, you mentioned on the pigment side the inventories climbing a little bit, and I guess I am just hoping you can provide some comfort that maybe this isn't a replay of a year ago when the industry maybe got a little more optimistic, built the inventories, ran it at higher rates and then had to have some pretty nasty adjustments through the year. Can you just sort of review why it might be different this time and why you -- why the industry might be building inventories a little bit too aggressively?

Last year at this time the industry had an inventory that was sitting on about 95 plus days of inventory, this year we are sitting at about 75 days of inventory. Last year Huntsman was sitting at about 80 days of inventory, and this year we are at about 65 days of inventory. I would they that the that is the first primary factor that we have got about two weeks of less inventory built in already than we did a year ago.

While it is probably a bit too early to make full first quarter forecast on the sales demand that we have seen -- to see the rest of the quarter clearly, what we have seen in January it would appear that the volume is holding up and does appear to be stronger than it was a year ago at this time. I would say that, while inventory levels are higher than I personally would like to see them, they are quite a bit lower than they were a year ago at this time.

And as we look at the preliminary sales figures for January, again I wouldn't say they are extraordinarily high. I would say that they are more in line with really where they should be on a more stable market footing.

Bob I would also remind you that this is the time you typically see seasonal build for the paint season so it is not unusual and, frankly, it is more seasonally normal to see a week or two of a build from the end of the third quarter to the end of the fourth quarter.

Okay, that's helpful. If I might follow up in the performance products division, and you really had a pretty good ascent on margins here. I think maybe this quarter was the best you have seen in three or four years and for the year pretty strong. Peter, I think you intimated there's room for more to come, so can you give us some sense -- maybe without stealing your thunder from next month but what sort of opportunity do you have on a margin basis in this division?

I kind of look at in our fourth quarter floor performance products, that was the best fourth quarter we had in that business. As I look across the board, the question I would have when I put on my investor hat, is are all of these businesses, or all the major divisions within this running at full capacity, full margin capacity.

So I kind of break the business down into four quadrants if you will. I'd look at our maleic anhydride, I'd look at our amines, I'd look at our surfactants and I'd look at our US -- what I would call the base chemicals in the US.

This is the only division were we do purchase ethane, we convert it into ethylene, we consume 100% of that ethylene internally. So we do -- we are in a position to take advantage of ethane economics. As I look at the ethane economics I think that has been running pretty consistent, and I think that -- there is probably not a great deal of upside there.

If I look at the maleic anhydride business, that certainly is an improved business over a year ago, and I think that there continues to be room for improvement in maleic anhydride as housing improves. As I look at the surfactants business, that's a business that's going to be growing at about the rate of GDP, and I would remind you that on our last conference call about a month ago or three months ago we announced a restructuring that will be taking place in Europe that will be improving the EBITDA of that business. We will be getting -- giving more detail on that on our investor day.

Certainly during this year, we will see an improvement in our surfactants business. Even if margins and demand stays the same just because of the restructuring that's taking place in Europe.

Lastly as I look at our amines, amines is doing quite well, but I certainly wouldn't say that our amines business is this is running at record rates compared to its historical. There certainly is room for improvement in our global amines and in our various amines business.

As a look at the business, it feels like it is doing very well, but I certainly would want to give the impression that it is peeking out, that it is running at absolute best margin. So a strong division, consistent division as I look this year we will also -- this last year which was a record year for this division not just a record quarter but a record year.

We also had a $55 million expense early in the year when we took our largest facility down in North America. Obviously that won't be happening this year. We will have some maintenance projects that will be going on throughout the year.

In the first quarter we will be taking down our ethylene facility that will cost us $8 million, $9 million in the first quarter but nothing of the magnitude that we saw this last year. Again, better market conditions, restructuring benefits and less downtime on maintenance for that division, sorry I probably have beat this question to death, Rob, think it is just a great division. It's going to continue to improve.

If I can add one more thing Bob, if you sort of step away and look at it from a longer-term perspective, with amines growing at 6% to 8% a percent a year and surfactants growing at 2% to 3% a year, you're really seeing over time this mix change to a higher margin business in amines, and you can see that over four or five year period, and you will continue to see that mix change.

Great. Thank you.

PJ Juvekar, Citigroup

One of your large competitors mentioned that all costs are going up, and I think all of your legacy contracts have expired already. Has oil pricing become a tailwind for you at some point in 2014?

I think as we look throughout 2014 we are seeing ilmenite prices today in kind of a sub-$200, around $200 a ton basis. Ilmenite is obviously the largest ore that we purchase and as I look at the capacity utilization the amount of tonnage that is coming into the market, I just don't see a lot of movement in the ilmenite [four] area, chloride, excuse me in the ilmenite slag that is kind of in the $500-ish range. Chloride slag in the $800s, rutile kind of in the $900-ish range, and I would say that with the slag and the rutile prices that there's probably good to be some gradual upward pricing pressure.

How much of that will be successful will -- that is probably the battle yet to be waged. But there certainly will be more upward pressure on the slags and the rutile ores than on the ilmenite ores which I would say would -- should remain pretty flat throughout the year.

In epoxy, you shut down two plants I think in Spain and India. What is the positive impact of those closures, and have you seen an increased competition in epoxies from China, and are they moving into any of the specialty epoxies?

Most of that closure took place in the third and fourth quarter, so I am not sure that there is much of a material impact on those closures. But I will let Kimo comment on it. He's probably got some more specific numbers than I on the impact of those closures. But I would say that we rapidly are moving in this business where a net buyer of BLR or basic liquid resin, and as I look at the manufacturing costs coming out of Asia and the Middle East longer-term I think that we are going to be greatly advantaged being a buyer of these products rather than a manufacturer of these products.

PJ we shut down roughly half of our basic liquid epoxy resin capacity globally in those two plants, Spain and India. We are much more balanced producer now consuming most of those resins internally in formulations. Yes, it did a benefit us at the bottom line, and it really facilitated a reduction in our fixed costs.

Kevin McCarthy, Bank of America.

If I look at your slide 9, which is very helpful, you carve up the sales trend between MDI and PO/MTBE and the polyurethane segment. Can you comment on the sales decline in PO/MTBE, what drove that minus 9% and also your operating rate for those processes please?

Most of that minus 9% would just be operating reliability at the facility itself. We sell -- we consume all the PO that we make internally or on some long term contracts. We sell all of the MTBEs.

So whenever there is a decrease, that is usually because of an operating upset or planned maintenance that we had at the facility. It is not that the demand has fallen so we're cutting back on utilization.

Elsewhere in the segment on the MDI side you referenced some of the benzene cost inflation. I think you said $0.70 a gallon or so. Do you have any contracts whereby you can pass that through automatically, or is all of the business looking at the 60 to 90 day lag that you referenced?

We have in North America, we have some contracts that allow us to pass through natural gas and benzene escalators. That is about one-third of our North American business.

The vast -- the rest of it in North America and the rest globally we would be on a benzene basis. The price goes up on benzene we would be calling for price increases and as the price goes down on benzene hopefully we get to keep some of that margin.

Great. And then final question if I may for Kimo, would you comment on how your pension funding status would have changed at year end and also what your outlook is for cash contributions in 2014?

Sure. Let me take the latter question first. Cash contributions in 2013 were about $170 million. In 2014 given the funding status that will drop to about $130 million.

You know that we for adjusted EBITDA purposes in the P&L we add back the amortization of actuarial gains and losses. So the P&L impact for adjusted EBITDA isn't going to be all that significant.

I think in terms of under-funding on the balance sheets side, it reduced by about half. I think we were at about $800 million under-funded. I'm going to use round numbers. I don't have my balance sheet in front of me. I think we're going to end up at year-end about half that -- about $400 million, $500 million under-funded on roughly $4 billion of liability, $3.8 billion I think is the number.

Great. Thank you so much.

Mike Ritzenthaler, Piper Jaffray.

Was there a meaningful Oxid contribution in the fourth quarter?

I think year over year it was probably $5 million.

Is like a $20 million EBITDA run rate for 2014 a good estimate?

That is a good number.

Just within advance materials as a follow up, the pruning of the lower margin businesses didn't really seem to hurt the top line. Is that a fair way to look at the next 12 months to see volume pressure because of the exiting in the business [in tolvec] it's lapped offset basically more than offset by pricing and mix?

I would think so. I would not be to transfixed in advance materials on sales tonnage but rather on margin and profitability. There will be noise there as we reduce some of the sales in the more commoditized side of the business. As I said in my comments as we look at our specialty components and our formulations businesses which is obviously the ends of the businesses that are profitable, we will see growth this year but on the BLR side, that will be questionable at best.

The restructuring benefits yet to come in advance mature is clearly that is not going to come from facility closures that is more just operational front-end, backend types of improvements?

That will come through improved pricing and a number of really self help issues, but the vast majority of closures and so forth have already taken place.

If I could just add the place you'll see some topline impact in terms of our restructuring is this European surfactants restructuring that we are going to be moving through here in 2014. You will see a top line impact there.

Got you. All right, guys, thanks very much.

James Sheehan, SunTrust.

I was wondering if you could give us your thoughts on MDI operating rates, is there room for those to increase over the course of 2014, and also what do you think of in terms of 2015?

I look at 2014, and I think that the operating rate again is going to be lumpy on a global basis, but I would say it is right around that 90% operating utilization rate. We have in North America we have a $0.05 increase that is effective February 1. We have a March increase of another $0.05 we have announced on MDI, an $0.08 increase in polyols on February 1.

That will take effect during the course of the first quarter going into the second quarter. Just to give you an idea, a $1 movement in benzene price you need about $0.085 per pound of MDI pricing to improve -- to offset that benzene. We obviously have enough pricing out there to offset the benzene increases that we have seen.

The question of being able to capture all of that price increase that we have out there in the marketplace and we continue to look at the international markets as well. As we look at the capacity utilization going into the next year, we continue to believe that capacity utilization will if anything tighten throughout 2014 and 2015. It is not until 2016 that you start to see some of this Asian wave of new capacity coming on, and again given what we were saying two years ago about capacity that we thought would be coming on this year, it is questionable in 2016 how much of that will be pushed into 2017 and so forth.

A year ago at this time we were saying that with felt we were pretty close with our own MDI project in China, and here we are a year later still trying to get final clearance on that project. I would say that delay isn't just germane to Huntsman. As we look at capacity utilization is year I believe that it is operating around that 90% level. I think is going to tighten throughout 2014, throughout 2015 and perhaps into 2016.

If I can just add, if you follow Peter's trends and trajectory, sort of 90% now tightening into the mid-90%s by 2015. And if all the capacity comes on as has been announced, we will drop utilization rates back to about where we are today in that 90% range so we're not talking about any more than utilization rates that we are seeing today in a 2016, 2017 time frame.

Very helpful, thank you. And also on Ti02 you mentioned producer inventories and I imagine the paint season and how stronger it is that is going to really affect this. But do you expect the inventories in the producer level to be completely normalized by year end?

I certainly hope so. I basically don't have any control what the competition does, but I would certainly hope by the beginning of the second half of the year that demand has normalized and that inventories have more normalized. I can only speak for our own inventories which will continue to be very disciplined with that amount.

Frank Mitsch, Wells Fargo Securities.

Just a follow up on that, Peter, how does your crystal ball look with respect to that scenario on Ti02 inventories in terms of potential pricing power for the product by the middle of the year into the latter part of the year?

Frank, you know we're going to fight very aggressively here for any price increase we can get, but I would just remind the listeners on this call that when we talked about the Rockwood acquisition last September I believe it was, we were talking about price increases taking place in the second half of this year. That is not to say that we are writing off anything that may happen before then, but I still continue to be confident that we will see price movement for the second half of this year as we start to see the US housing market, the recovery that is taking place in Europe and so forth.

I continue to be optimistic and believe that during the second half of the year the business -- our business will be running at a $200 million annualized run rate. And I would go a step further and say tat I believe the Rockwood the business in its entirety, the business that we are buying will be very similar to that.

Terrific, and that begs the question what is left to be done in terms of closing that deal? Is it just the European Union approvals, and what is your expected timing on that?

It is the European Union filing. There have been a couple of public releases that have come from the EU commission, but at this point, given the sensitivity around the review that is taking place and so forth, I wouldn't want to try to hazard a guess as far as when that may or may not come. I think that we will be sticking to our comments around the first half of this year.

Wow you are tough to move off that. That is fine.

Lastly, Peter, you had originally thought that fourth quarter would probably come in a sequential decline in adjusted EBITDA by 25%. It came in around 17%. So what went right for you, and is that going to continue in Q1 here?

In pigments?

No, I apologize for the Company overall. I think you had initially in the last conference call in the last quarterly conference call you had suggested that you typically see seasonal decline of about 25%, and that kind of felt right to you in terms of the decline in EBITDA for Q4 sequentially from Q3. Obviously you came in at 17% you reported this morning so I am just curious between now and three months ago what went right in terms of the numbers for you coming in a bit better, and is that going to continue here in Q1 or is that continuing here in Q1?

I think that there are two divisions I think that surprised me in the fourth quarter. I typically am not surprised with this business, but I would say that the advanced materials, we were at $8 million a year ago, and if you look at our fourth quarter in that business for the last three or four years, fourth quarter in that business has just been abysmal. And it seems like we built all of this manufacturing inventory and everything, and then we always get smashed at the end of the year.

This year we did a much better job managing inventory, we did a better job with our costs, we did a better job with pricing and so forth. And the improvements that we saw year over year in advance materials I thought it was really a pleasant surprise and speaks about the restructuring that has been successfully taking place there. I believe that that as we look into this next year, I think that there -- we expect that business to do better in 2014 than in 2013.

I think that the secondary in the fourth quarter that perhaps took me a little but by surprise was the performance product, just the strength across the entire board but particularly in our amines businesses. And again that is 100, several hundred different price points and product blends and so forth, but just across the board, that division performed exceptionally well.

Even midway through the quarter we kept expecting the usual fourth quarter slow down to occur, and December was a strong quarter on demand and so forth. And it wasn't in any one particular product or any one particular geography. It was -- I see both of those businesses continuing into 2014 on stronger footing then 2013.

Thank you so much.

Ivan Marcuse, KeyBanc capital markets.

First one on the cash flow, how much if you look at 2014 how much will be spent on your cost saving initiatives? And then if you look at your CapEx guidance of about $500 million, how much is related to maintenance versus your growth projects that you have laid out in the past?

Let's take that last question first in terms of maintenance CapEx. It's probably 2014 close to $180 million so the rest is discretionary capital.

Your first question on cost of restructuring, we have -- we will spend right around $100 million in cash. Almost all of that is completely reserved, and we've taken the charge on the P&L but roughly $100 million of cash restructuring payments.

Got you. So with the lower pension expense and presumably higher earnings looking out to next year, would you expect your free cash flow to continue to show a nice increase on a year over year basis in 2014, or do you have any other -- is there any cash flows to consider that may be a use or source?

No, I think operating cash flow should continue to increase. Again, we wouldn't expect restructuring -- it will significantly increase in 2015 as pensions will be largely funded, and that will continue to fall, and restructuring will reduce to nearly zero. The only restructuring that we have announced that we would still be probably spending money on in 2015 would be that European surfactants restructuring that has a $20 million benefits.

I guess the only other thing that I would point out in 2014 versus 2013 in terms of cash flow is cash taxes. Our cash taxes were low in 2015 -- excuse me in 2013 and in 2014 you should see a tax cash rate of right around 30% which is a significant increase.

Great. And then on your year over year EBITDA bridge, how much was your direct cost of that $34 million, how much of that was in your polyurethanes business as a result of the benzene, or was there a raw material headwind on a year over year basis in the fourth quarter?

Direct cost in polyurethane, it didn't -- polyurethanes direct costs year over year dropped $10 million, $11 million.

So the volume would that be about $10 million as well up?

Polyurethane again I pulled out propylene oxide, but we -- in EBITDA terms, $25 million improvement in volumes in our urethanes business from volume.

Got you, excluding the PO/MTBE, or is that including?

As you know volumes fell, and so that was roughly $10 million hit in EBITDA terms on volumes, but the MDI side was $25 million improvement because of volumes in EBITDA terms.

Hassan Ahmed, Alembic Global.

Just wanted to revisit the Ti02 side of things. Just wanted to understand better the interplay betweenTi02 pricing and the ore cost side of things.

Obviously 2013 very strong year in terms of volumes, but I would imagine one of the things that resulted in downward pricing pressure was rutile ore costs in particular bringing down the cost curve. From your commentary, is it fair to assume that rutile ore costs have already petered out and are beginning to show an uptick?

I would -- I am not sure that I wholeheartedly agree with that comment, but I wouldn't disagree with that. I know it's of the sampling both sides of that, but we are just not all that heavily into the rutile side of the ore demand. Just from what we are hearing in the industry, I think there's probably more truth to that then not.

Fair enough. And so basically even through the course of the fourth quarter, probably you started seeing some signs of stabilization in pricing -- Ti02 pricing?

Our prices really have been fairly stable for the last three quarters, and we would expect in the next quarter very stable in all regions.

Very good. On a separate note, you had mentioned that you'd expect polyurethane EBITDA to be lower in the first quarter of 2014 than the first quarter of 2013. As I look at my model, you guys made around $178 million in EBITDA in Q1 2013, $173 million in the fourth quarter, so a bit of a tight range. Just trying to understand by was sort of magnitude should we expect this decline to be going from a year over year basis? 10%, 20%, some sort of magnitude.

That is really question around benzene and Peter's outlined sort of what we have seen, and we're not exactly sure where benzene is going, but he has outlined $0.70 increase per gallon on roughly 200 million gallons. Could it be -- if it stayed that high end and our pricing activity lagged by 60 days, could you see $20 million of headwind there temporarily in the first quarter? I think you could.

Edlain Rodriguez, UBS.

Two questions on polyurethanes. Peter, you talked about the prices, the lack of 60 to 90 days that you having getting prices, does it work the same way when prices have to go down because you do expect benzene prices to move down by the end of the second quarter -- the first quarter?

I would say the pricing coming down has more to do with capacity utilization then raw material movement. When markets are at 90% and above on capacity utilization, typically prices will fall much slower then raw materials will fall, and prices will rise much quicker in response to rising price increases.

I would say that in today's market environment, we would hope that, as Kimo just said, we will see a 60 to 90 day lag in getting prices up to counter the benzene increases. But I believe that as benzene prices come off, will be able to recover that lost EBITDA later throughout the year.

The other question is, when you look at the EBITDA for polyurethanes in both 2012 and 2013, how much, what is the split between MDI and PO/MTBE?

What we have done as a practice is given you a net change in the propylene oxide MTBE business, but we haven't been disclosing the absolute amount.

Just trying to see how important PO/MTBE is of that segment. Quickly just geographically are you seeing any softness in the emerging markets given all the concerns we have there and also in Asia?

You are talking geographically across all of our businesses?

Yes.

I would say that for us, you are looking at 80% of our business. As we look at our fourth quarter growth, I would say that we are seeing pockets of slowness that are taking place in certain of the developing markets. On the [Ozzian] area perhaps and in India in some of our products, but I'm not seeing as much is you are reading about in the newspapers.

Robert Walker, Jefferies.

This is Rob Walker on for Laurence. Given your expectations for [products arise] in each segment any expectation around whether corporate costs should be higher before restructurings?

They should be fairly flat maybe up just a little bit with some inflation but pretty flat. That corporate line includes some sort of non-fixed cost areas including LIFO. There is a little bit of other stuff in there, some FX, unallocated FX, but if foreign exchange rates stay the same and we don't have a lot of LIFO change, your corporate lines shouldn't change.

I do want to just comment when wee look at all of the benefits that have come to our cost restructuring, a lot of that benefits have been because of cost control and containment that has taken place on that corporate line. I think if you look at that over the last couple of years, that line has grown much slower than the overall business has.

That is an area we thought -- we are always focusing on costs within the division themselves, but when we look at cost within the divisions, we are also cutting costs that appear on that corporate segment as well. I just wanted to make note of that.

Bigger picture question, you managed to increase your EBITDA pretty significantly this year in advanced materials and performance and on lower sales. Can you talk about where you think incremental margins are those businesses?

In the advanced materials we have publicly talked about some of our end use applications in the coatings, in the electronics area, and that is not like consumer electronics. That would be in the electronics that are -- the infrastructure where epoxies are replacing porcelain.

You see more and more carbon fiber that is going into the automotive industries than ever before. The aerospace industry continues to grow very rapidly at a double digit growth rates for us, and a lot of it is particularly in the developing markets around the world, the DIY markets in India and the Ozzian areas and the Middle East, the DIY market continues to be with the Araldite brand continues to be something that grows significantly better than GDP.

As you look at the performance product area, again we continue to see strong demand in anything that is related to housing, that would be on a global but particularly North America, oil field service -- we are producing a lot of the components that are going into enhanced oil recovery, fracking, a lot of the herbicides and the agrochemical, agricultural industry we've seen strong growth in that area. Again it is really across the board, and we continue to be a believer in a couple of these fundamental issues that energy prices are going to be relatively high, and those are going to continue to be an area of growth opportunity for Huntsman. Carbon fiber strength in automotive and aerospace and in the electronics industry.

The amines growth will continue. We've kind of taken some of these fundamental issues that we believe in, we have got a strong pipeline of products that are coming out over the course of the next two or three years. And so it is tough to point to any one product or any one it area where we see that growth.

I'd just remind you in performance products we have to very sizable capital projects that we're in the middle of 2014 that will be completed in 2015. That is this expansion of our ethylene oxide business in Port Neches, Texas.

That will be spent nearly $100 million on that project, and that will be in incremental $20 million-$30 million EBITDA on an annualized basis probably second half of 2015. And then we're expanding doubling the size of our Jurong Island polyether amine facility. And that is a sizable project that will be completed in 2015. So two fairly meaningful capital projects.

Marc, this is Kurt Ogden. I believe we're at the top of the hour. Why don't we try and squeeze one more question in if we can.

Jeff Zekauskas, JPMorgan.

In your restructuring table your restructuring settings are up $150 million year over year. Is that what was actually captured, or is that a run rate number, or what is the difference between the run rate and the captured number?

Le me get to the page that you are looking at.

Slide 8.

Thank you. That is $180 million of benefit in 2013, and obviously that is different than the $124 million of fixed cost savings in the waterfall slide and obviously the difference is some inflation and some growth including some M&A that we have done.

In answer to a previous question you said that your cash restructuring and 2014 would be about $100 million. Does that mean that all of the cash restructuring of Rockwood will get done in 2014?

No. I'm sorry Jeff, we have not included any of the restructuring costs or benefits in these numbers for Rockwood. That would come in addition, and you remember there is $130 million of benefits and the cost are about the same. It is about $130 million.

Lastly, are your MDI utilization rates or for the industry as a whole are they different than the United States versus Europe, versus China, because you spoke of them being 90% utilization.

I would say that they are all fairly close to each other. I think that when we get out to 2016, that next wave of capacity virtually all of that capacity will be in Asia. Kimo talked about capacity utilization rates assuming everything gets built and assuming that it all comes on, on time which I am skeptical of those things happening.

If it does happen, you will see global capacity rates go down to about 89% utilization rates, and it will probably be in the mid 80%s in Asia, and it'll probably be in the low 90%s if not higher in Europe and North America. Which is a good balance because the vast majority of global growth in MDI is taking place in China -- should be taken place in China over the next decade, and Huntsman is well positioned in China. But we are even better positioned in North America where we are the largest producer in North America. It is not going to remain exactly the same, but I quite like the trends that are shaping up.

Marc, I believe that concludes our call today. We want to thank everybody for joining us, and we will look forward to engaging with you here over the next several weeks and months.

And again we look forward to seeing many of you at our investor day on March 6. So send us an email if you would like to participate in that. Thanks again.

Thank you for your participation in today's conference call, everyone. This concludes the presentation, and you may now disconnect. Have a good day.